Texas factory activity increased sharply in June, according to
business executives responding to the Texas Manufacturing Outlook
Survey. The production index,
a key measure of state manufacturing conditions, rose six points
to 17.1, posting its highest reading in more than two years.

Notably stronger manufacturing activity was reflected in other
survey measures as well. The new
orders index climbed to 13 in June, a level not seen
since July 2011. The capacity
utilization index rose to a two-year high, jumping from
6.4 to 15.3. The shipments index
advanced 12 points to 15.4.

Perceptions of broader business conditions rebounded strongly in
June. The general
business activity index rose to 6.5 after posting
negative readings in April and May. The company
outlook index soared 20 points to 13.3, reaching its
highest level in 16 months.

Labor market indicators reflected steady labor demand and longer
workweeks. The employment index
was zero in June, suggesting no change in employment levels.
The hours
worked index moved up to 4.8 after four months in
negative territory.

Price movements were mixed in June; input prices and wages rose
while selling prices declined. The raw
materials price index increased again this month, rising
from 6.4 to 14.3. The wages
and benefits index also strengthened, from 14 to 20,
although the great majority of manufacturers continued to note no
change in compensation costs. The finished
goods price index remained negative for the third month
in a row but moved up from -8.3 to -2.1. Looking ahead, 33 percent of
respondents anticipate further increases in raw materials prices
over the next six months, while 25 percent expect higher finished
goods prices.

Expectations regarding future business conditions improved
significantly in June. The index of future general
business activitysurged to 14.7 after negative readings in
April and May. The index of future company
outlook rose sharply as well, coming in at 21.8. Indexes
for future manufacturing activity also moved up.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey
monthly to obtain a timely assessment of the state’s factory
activity. Data were collected June 11–19, and 95 Texas
manufacturers responded to the survey. Firms are asked whether
output, employment, orders, prices and other indicators
increased, decreased or remained unchanged over the previous
month.

Survey responses are used to calculate an index for each
indicator. Each index is calculated by subtracting the percentage
of respondents reporting a decrease from the percentage reporting
an increase. When the share of firms reporting an increase
exceeds the share reporting a decrease, the index will be greater
than zero, suggesting the indicator has increased over the prior
month. If the share of firms reporting a decrease exceeds the
share reporting an increase, the index will be below zero,
suggesting the indicator has decreased over the prior month. An
index will be zero when the number of firms reporting an increase
is equal to the number of firms reporting a decrease. Data have
been seasonally
adjusted as necessary.